U.S. stock futures slumped, putting markets on course for another day of bumpy trading, as investors awaited the start of the Federal Reserve’s policy meeting and a docket of major earnings.
S&P 500 futures fell 1.6%, while futures tied to the technology-heavy Nasdaq-100 slumped over 2%. Futures linked to the blue-chip Dow Jones Industrial Average dropped 1%.
Market volatility has spiked in recent sessions, amid investor anxiety about how rapidly the Federal Reserve will act to combat inflation by raising interest rates and shrinking its balance sheet. Meantime, the first batches of earnings have failed to deliver the bumper beats investors became accustomed to last year, while geopolitical tensions surrounding Ukraine and Russia have weighed on sentiment.
Markets whipsawed Monday, with the Nasdaq Composite declining as much as 4.9% before rallying to close 0.6% higher. The S&P 500 and Dow Jones Industrial Average staged similar comebacks.
The turbulent trading “showed that investors are facing a dilemma,” said Tai Hui, Asia chief market strategist at J.P. Morgan Asset Management. Investors, who are expecting up to four interest rate increases this year, are anxious about what that could do to pricier stocks, but the economic outlook remains decent and they are aware that few assets offer equities’ long-term return prospects, he said.
Federal Reserve officials are set to debate the path of monetary policy, including the speed at which they shrink their nearly $9 trillion bond portfolio, at their two-day meeting that starts Tuesday. Chairman Jerome Powell is expected to use his postmeeting comments Wednesday to lay the groundwork for a cycle of interest-rate rises.
The yield on the benchmark 10-year U.S. Treasury note rose Tuesday to 1.768%, from 1.735% Monday. Bond yields move inversely to prices.
Aside from the Fed meeting, investors are awaiting a bevy of major earnings.General Electric,3M,Johnson & Johnson,Raytheon Technologies,American Express,Lockheed MartinandVerizon Communications are scheduled to post results ahead of the opening bell.Microsoft will release figures after markets close.
Overseas, Japan’s Nikkei 225 closed down 1.7%, with major decliners including the technology and telecom giant SoftBank Group, which fell more than 5%. Australia’s S&P/ASX 200 and South Korea’s Kospi Composite both retreated more than 2%. Hong Kong’s Hang Seng Index shed 1.7%.
European stock markets rebounded, having closed Monday before U.S. indexes rallied. The pan-continental Stoxx Europe 600 index was up 1% Tuesday.
U.S. markets are likely to remain volatile at least until the Fed’s first rate increase, which is expected to be in March, said Jason Liu, the Asia head of the chief investment office at Deutsche Bank’sinternational private bank. His team cut their stance on U.S. stocks to neutral from overweight last week, after maintaining an overweight position for more than a year.
“Everyone will be watching the Fed’s guidance this week,” Mr. Liu said.
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